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VZCZCXR0247 1 

RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV 

DE RUEHFR #1462/01 1021053 

ZNR UUUUU ZZH 

R 121053Z APR 07 

FM AMEMBASSY PARIS 

TO RUEHC/SECSTATE WASHDC 6435 

INFO RUEATRS/DEPT OF TREASURY WASHDC 

RUCPDOC/USDOC WASHDC 

RUCNMEM/EU MEMBER STATES 

UNCLAS SECTION 01 OF 02 PARIS 001462 

SIPDIS 

SIPDIS 

PASS FEDERAL RESERVE 
PASS CEA 

STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 

TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4 2 12 /MAC /EUR/ OEURA 

E.O. 12958: N/A 

TAGS: EFIN ECON PGOV ELAB FR 

SUBJECT: FRENCH PUBLIC DEBT RATIO DROPS IN 2006 

REF: 06 Paris 7815 

1.1. SUMMARY: French public debt decreased to 63.9 percent of GDP, 

based on Maastricht definitions used to report budget data to the 
European Commission. A reduction in the central government deficit, 
sales of shares in state-owned companies, and better management of 
government short-term securities contributed to that result. END 
SUMMARY . 

Public Debt/GDP Ratio Decreases 2.3 Percent in 2006 



12. On March 30, the French National Statistical Agency, INSEE, 
released preliminary estimates of the general government budget 
deficit (including central government, social security system and 
local authorities) and the overall government public debt. Data 
are based on Maastricht definitions, used by the government to 
report France's budget deficit and public debt figures to the 
European Commission. France's GDP/debt ratio dropped from 66.2 
percent of GDP in 2005 to 63.9 percent in 2006. In absolute terms, 
French public debt (1,142 billion euros or 1,518.9 USD) increased 
only 0.5 percent compared with a 6.5 percent increase in 2005. 

INSEE may slightly revise estimates of debt as a percent of GDP on 
May 15, when it releases preliminary 2006 GDP data. 

Finance Minister Says GOF Strategy Successful 



1.3 . The 2.3 percent decrease in the public debt/GDP ratio is the 
largest in the last thirty years. Breton described the performance 
as "historic" and "in line with his May 19, 2006 commitment to 
reduce the public debt/GDP ratio by 2 percent in 2006" (reftel). He 
told LCI TV that, "by pursuing the same strategy, the public debt 
ratio should fall to below 60 percent before 2010, and the 
government could have a budget surplus afterward." 

GoF Claims Better Spending Control 



14. The improvement in the public debt/GDP ratio was partly due to a 
decrease in the central government (CG) deficit. The deficit in 
2006 fell to 47.5 billion euros (63.0 billion USD) from 52.4 billion 
euros (69.7 billion USD) in 2005. French CG negotiable debt 
decreased, down to 876.6 billion euros in 2006 from 877.4 billion 
euros in 2005. The Finance Ministry's budget office attributed the 
performance to a zero percent growth limit it imposed on CG 
expenditures. Additional tax receipts (10.2 billion euros or 13.6 
billion USD) were used to reduce the CG budget deficit as planned by 
the government. At the end of President Chirac's mandate, France 
will have posted a decrease in the overall budget deficit to 2.5 
percent of GDP (versus his initial objective of 2.6 percent). This 
is a significant improvement compared with the 2003 overall budget 
deficit, which had crept up to 4.1 percent of GDP. 



Sales of State-owned Assets Helped 



15. The government used proceeds from privatization of highways (13 
billion euros or 17 billion USD) and the sale of GOF shares in 
Alstom and Aeroport de Paris to repurchase 17.1 billion euros (22.7 
billion USD) in short and medium term public debt. The 2006 
government debt issue program was reduced to 104.1 billion euros 
(138.4 billion USD) in 2006 from 119.5 billion euros (158.9 billion 
USD) in 2005. 

GOF Claims Better Management of Short-term Securities 



1[6 . The GoF modified its management of the central government's 
short-term securities. The new management used refined forecasts to 
reduce the outstanding amount of Treasury bills to 29.1 billion 
euros (38.7 billion USD) in 2006. A very-short-term Treasury bill 
was issued for the first time by auction on September 4, 2006, to 
anticipate September tax receipts. The government instituted a 
system across ministries for the exchange of information to limit 
waste of money. The Public Debt Fund ( "Caisse de la Dette 
Publique") used occasional surpluses, before repurchasing Treasury 
bills and bonds, to temporarily fund the social security general 
regime by subscribing 4.96 billion euros (6.6 billion USD) in bills 
issued by the Social Security Fund (ACOSS). 

Comment 



f.7 . (SBU) Despite the good news, France has yet to make serious 
progress on sustainable expenditure restraint, the key to real 
fiscal adjustment. The main candidates have paid lip service to the 
need for continued improvement of public finances, but campaign 
promises may push politically difficult spending cuts further into 
the future. 

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